CLAIMS for Bad Value Commercial Loans

BAD VALUE COMMERCIAL LOANS: 1. SWAPS

In the course of the last two years we have been active in investigating various interest rate hedging products “Swaps” which the banks foisted on business borrowers, adding heavily to their liabilities. Last year the FCA (Financial Conduct Authority) ruled that these were regulated products and accepted that large numbers of them had been mis sold. All banks have now been required to review sales of these products. However, it is the same people who sold these products for the bank who are now in charge of reviewing the sale!

Swaps are complex derivatives which have earned banks huge profits and left many small to medium-sized firms struggling with debts they cannot escape from without professional help. Lower interest rates make swaps and the attached commercial loans far more expensive to service as a result of increased payments for the swap and the inevitable increase in the rate of interest on their loans in a market when interest rates were falling. The high exit cost meant businesses were stuck with these high payments. But in many cases now it is possible for borrowers to escape from this trap and win compensation when it can be shown that the deal was unfair. This is a highly technical area and it is easy for borrowers to make statements that can damage their claims. When offering compensation on PPI complaints banks tried to lessen their payouts by arguing that customers wanted and needed some protection and so they have deducted the cost of a monthly protection policy from the full cost of the PPI – an approach widely criticised in the media. They are now using the same techniques to push businesses out of the Review or offer a replacement product leading to lower compensation offers or none at all. It is wise to seek professional help from experts. If you took out a commercial loan between 2001 and 2012 give us a call.

Another type of commercial loan advanced to small businesses has received far less publicity but is just as dangerous as swaps: long-term loans with embedded swaps (a fixed interest rate). Bank sales staff made them seem very attractive suggesting to their clients that these loans offered security and certainty. Most business people in their fifties remember the times in the nineties when Bank of England (BOE) base rate was as high as 13-14% and borrowing rates were even higher, so the risk of future higher interest rates was something sales staff made much of when persuading clients to select a fixed rate loan. Customers would know exactly how much they had to pay the bank, they were told, which would help them with forward planning. Also if interest rates rose they would be protected from the rise in rates which might have created difficulties in servicing their loans.

There was of course a hidden catch. These fixed rate loans, set up for periods often of 10 years or longer, had heavy break-clauses written in an unintelligible legal jargon. As a result if customers wanted to pay off their loans and take advantage of the lower interest rates that have prevailed from 2008 to the present day they could not do so without paying massive penalties of up to half the value of the sum originally borrowed. These break clauses locked borrowers in to bad value loans for 10 years or more earning the banks vast profits. Well over 70,000 of these products have been sold to small and medium-sized businesses.

Lloyds Bank (and Bank of Scotland), RBS and Clydesdale/Yorkshire (which called them Tailored Business Loans) in particular marketed large numbers of these fixed rate 'Treasury' loans. Although they have not yet received much press coverage, at a recent meeting of the Treasury Select Committee they were widely criticised. CLAIMS has already advanced arguments that have led to compensation offers. We specialise in getting small businesses out of these loans without the contractual break-clause penalties being applied. We are managing to show that the banks were marketing an unfair product and that their clients have a right to terminate the loans they are currently locked into without paying huge sums of money to their bank in break fees, and often receiving a refund of sums they have paid as a result of the high fixed interest rate when rates have been at historic lows.